Income Tax Appellate Tribunal - Amritsar
The Asstt. C.I.T., Range 1 vs The J And K Bank Ltd. on 18 July, 2006
Equivalent citations: [2008]110ITD603(ASR), [2008]303ITR310(ASR), (2007)109TTJ(ASR)69
ORDER
A.D. Jain, Judicial Member
1. This is department's appeal, under the Interest tax Act, for the assessment year 1998-99, against the order dated 24-2-2003, passed by the learned CIT(A), Bhatinda. It has been pleaded that the learned CIT(A) has erred in allowing any opportunity to the Assessing Officer before admitting additional evidence produced by the assessee, whereas providi ng of such opportunity was a statutory requirement as per Rule 46A(3) of the Income tax Rules, 1962 read with Section 15(4) of the Interest Tax Act.
2. In the computation of taxable interest, as per the revised return filed by the assessee, the assessee claimed deduction on account of interest on Commercial Paper, to the tune of Rs. 24,65,095/-. Before the A.Q., the assessee submitted that an investment of Rs. 9,50,25,039/- had been made by it with M/s. Kotak Mahindra Finance Ltd., on which, interest @ 10.25% was earned, for 90 days, amounting to Rs. 24,65,095/-. The A.O., however, observed that the assessee had not tiled any evidence or proof that this interest was exempt, as per the Interest tax Act. As such, the A.O. added this amount to the taxable interest shown by the assessee.
3. On appeal, by virtue of the impugned order, the learned CIT(A) deleted the addition made by the A.O., observing that the counsel for the assessee, during the appellate proceedings, had filea certificate issued by M/s. Kotak Mahindra Finance Ltd., to the effect that the said amount pertained to Commercial Papers; and that the details of the Commercial Papers had been given. The department is aggrieved by this order passed without, according to the department, allowing any opportunity to the A.O., before relying on the additional evidence produced by the assessee.
4. Before us, the learned D.R. has submitted that affording a proper and adequate opportunity to the A.O. before entertaining additional evidence, is a statutory pre-requisite, as envisaged by Rule 46A(3) of the Income tax Rules, 1962. However, in not providing such opportunity to the A.O., the learned CIT(A) has violated Rule 46A(3) of the Income tax Act, 1961 read with Section 15(4) of the Interest tax Act. As such, the order of the learned CIT(A) is liable to be vacated and that of the A.O. is entitled to be restored while allowing the appeal of the department.
5. On the other hand, the learned Counsel for the assessee has submitted that Rule 46A(3) of the Income tax Rules, 1962 is not applicable to proceedings under the Interest tax Act. This, according to the learned Counsel for the assessee, is so since Section 21 of the Interest tax Act, which lays down the Sections or the Income tax Act which are applicable to the Interest tax Act, does not mention Section 295 of the Income tax Act. It is only Under Section 295 of the Income tax Act that rule making power has been exercised and the Income tax Rules 1962 have been framed. Rule 46A(3) is a rule under the Income tax Rules, 1962. That being so, the grievance of the department that additional evidence was entertained by the CIT(A) in this case at the back of the A.O., is not maintainable.
5.1 Further the learned Counsel for the assessee has submitted that even Section 15(4) of the Interest tax Act, which has been sought to be invoked by the department by way of present ground of appeal No. 1, is different. There is no violation of this section inasmuch as this section provides that the Commissioner (Appeals) shall hear and determine the appeal and, subject to the provisions of the Interest tax Act, pass such orders as he thinks fit. In this case, the learned CIT(A) has passed an order as thought fit and this order is entitled to be maintained, there being no error therein.
6. We have heard the arguments advanced by both the parties and have perused the material brought on record before us. The short question here is with regard to the applicability or otherwise of Rule 46A(3) of the Income tax Rules, 1962. Rule 46A(3) of the Income tax Rules, 1962 reads as follows:
Production of additional evidence before the Deputy Commissioner (Appeals) and Commissioner (Appeals).
46A(3) The Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) shall not lake into account any evidence produced under Sub-rule (1) unless the Assessing Officer has been allowed a reasonable opportunity-
(a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or
(b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant.
7. The stand of the department is that it is only Under Section 295 of the Income tax Act, that the Income tax Rules, 1962 have been framed. Section 295(1) runs as follows:
295(1). The Board may subject to the control of the Central Government, by notification in the Gazette of India, make rules for the whole or any part of India for carrying out this Act.
8. The learned Counsel for the assessee has pleaded that applicability of the provisions of the Income tax Act, to the Interest tax Act, is governed by Section 21 of the Interest tax Act. For facility, Section 21 of the Interest tax Act is being reproduced hereunder:
Section 21 - Application of provisions of Interest tax Act:
The provisions of sections and Schedules of the Income tax Act and the Income tax (Survey Proceeds) Rules, 1962 as enforced from time to time shall apply that necessary modification as if the said provisions and the rule referred to Interest tax instead of Income tax Act; and 2(44), 119, 129, 131, 132, 132A, 132B, 133 to 136 (both inclusive), 138, 140, 145, 156, 160, 161, 162, 163, 166, 167, 170, 173, 175, 176, 178, 179, 220 to 227 (both inclusive), 228A, 229, 232, 237 to 245 (both inclusive), 254 to 262 (both inclusive), 265 to 268 , 268, 269, 281, 281B, 282, 284, 287, 288, 288A, 288B, 289 to 293 (both inclusive), the second Schedule and the third Schedule; provided that reference in the said provisions and the Rule to the assessee, shall be construed as reference to an assessee has defined in this Act.
8.1 According to the learned Counsel for the assessee, a reading of Section 21 of the Interest tax Act itself shows that Section 295 of the Income tax Act has not been made applicable to Interest tax Act; and that being so, Rule 46A(3) of the Income tax Rules, 1962 is also not applicable to the Interest tax Act.
8.2 The contention on behalf of the assessee is, we find, correct to the extent that Section 295 of the I.T. Act is not applicable to the Interest tax Act. Section 295 of the Income tax Act is the section which gives to the Central Board of Direct Taxes, power to make rules, for earning out the purposes of the Income tax Act. No denying, the Income tax Rules, 1962, have been framed by virtue of the power bestowed upon the C.B.D.T. by Section 295 of the Income tax Act. Section 295 of the Income tax Act, as is clear from a perusal of Section 21 of the Interest tax Act, is not applicable to the Interest tax Act. This means that power to frame rules for carrying out the purposes of the Income tax Act has not been made applicable to the Interest tax Act. This is so, because the Interest tax Act contains Section 27, which carries the power to make rules for carrying out the purposes of the Interest tax Act.
8.3 Obviously, the Rule Making Power for making rules to carry out the purposes of one specific enactment cannot, unless so specified by the legislature, be imported for another separate Act. That is the reason why Section 295 of the I.T. Act does not find mention in the sections enumerated in Section 21 of the Interest tax Act. However, this contention of the learned Counsel for the assessee does not carry the case of the assessee any further. Firstly, at worst, as is evident from the above discussion, it is a case of mere wrong mentioning of the provisions. Ground of appeal No. 1 raised by the department before us is as follows:
1. That on the facts and in the circumstances of the ease, the Id. CIT(A) has erred in not allowing any opportunity to the A.O. before admitting additional evidence produced by the assessee which was a statutory requirement as per Rules 46A(3) of the I.T. Rules, 1962 read with Section 15(4) of the Interest tax Act.
Admittedly, the proceedings before the Taxing Authority were proceedings under the Interest tax Act. The orders passed by both the authorities were orders under the Interest tax Act, i.e., though the impugned order starts as "Order Under Section. 250(6)", and though this order has been passed by the learned CIT(A). Bhatinda, undeniably, the order of the A.O., passed on 30-3-2001, was passed Under Section 8(3) of the Interest tax Act, whereas that passed by the First Appellate Authority, i.e., the impugned order, was passed Under Section 15(4) of the Interest tax Act, by the CIT(A) exercising power of Commissioner of Interest tax (Appeals). Actually, the ground of appeal raised before us should have mentioned "Section 15(5) of the Interest tax Act" instead of "Rule 46A(3) of the Income tax Rules, 1962". It is Section 15(5) of the Interest tax Act, which is the governing section here. This section reads as follows:
15(5). The procedure to be adopted in the hearing and the determination of the appeals shall, with any necessary modification, be in accordance with the procedure applicable in relation to the Income tax Act.
Section 15(5) of the Interest tax Act, therefore, makes the position crystal clear. It specifically lays down that the hearing and the determination of the appeals before the learned Commissioner of Interest tax (Appeals), which includes entertaining of additional evidence, is to be in accordance with the procedure applicable in relation to the Income tax Act. In other words, the procedure to be adopted by the Commissioner of Interest tax (Appeals), while entertaining additional evidence, is that laid down in Rule 46A(3) of the Income tax Rules, 1962, the said rule unequivocally being a rule applicable "in relation to the Income tax Act".
9. Otherwise too, the principles of natural justice demand that adequate opportunity be granted to a party before entertaining additional evidence against such party. In the present ease, undeniably, the learned Commissioner of Interest tax (Appeals) has entertained additional evidence at the back of the A.O. The relevant portion of the impugned order reads as follows:
During the course of appellate proceedings, Shri R.K. Gupta attended. He has filed before me a certificate issued by M/s. Kotak Mahindra Finance Ltd. to the effect that the said amount pertaining to commercial papers. The details of the commercial papers has been given.
I have examined the evidence filed by the assesses and found the same in order. I delete the addition at Rs. 2465095/-.
10. Rule 46A(3) of the Income tax Rules, 1962 is again being reproduced hereunder for ready reference:
Production of additional evidence before the Deputy Commissioner (Appeals) and Commissioner (Appeals).
46A(3) The Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) shall not take into account any evidence produced under Sub-rule (1) unless the Assessing Officer has been allowed a reasonable opportunity-
(c) to examine the evidence or document or to cross-examine the witness produced by the appellant, or to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant.
11. Rule 46A(3) (supra) thus casts a statutory obligation on the (sic) Commissioner (Appeals) not to take into account: any additional evidence unless the A.O. has been allowed a reasonable opportunity to rebut the same. In the present case, as the impugned order itself shows, no opportunity has been afforded to the A.O. by the learned CIT(A) before entertaining the additional evidence. This action is clearly violative of Rule 46A(3) of the Income tax Rules, 1962, which, as discussed hereinabove, is squarely applicable to proceedings under the Interest tax Act.
12. An argument could be raised that whereas in the Income tax Act; a specific power has been given by Section 295 to the C.B.D.T. to frame rules and Rule 46A of the Income tax Rules has been framed thereunder, whereas in the Interest tax Act, though Section 27 has provided the power to the Board to make rules and rules have been framed, no rule with regard to the entertaining of additional evidence by the Commissioner (Appeals) has been framed and so, the action of the CIT(A) does not suffer from any infirmity. This too, would not help the cause of the assessee. It is true law, that the sections of an Act carry more force than the Rules framed thereunder, in case of any militancy between them inter se. A delegated legislation cannot override the delegating legislation. Here the section itself, i.e., Section 15(5) of the Interest tax Act is couched in no uncertain terms. It provides that the procedure to be adopted in such cases would be the procedure applicable to the Income tax Act, i.e., the Income tax Rules, 1962. As such, absence of a specific in the interest tax rule in this regard is immaterial.
13. It cannot be gainsaid that the Income tax Rules, 1962 arc entirely in conformity with the principles of natural justice, including the principle of audi alterm partem. Nobody can be condemned unheard. No additional evidence can be entertained at the back of the party against whom such evidence is to be used.
14. All considered, we find merit in the grievance of the department. This grievance is thus accepted as justified. Accordingly, the matter is restored to the file of the A.O. for decision afresh. Of course, the assessee will be afforded adequate opportunity by the A.O. to produce the aforesaid evidence furnished before the learned CIT(A) and to substantiate the same.
15. For statistical purposes, therefore, the appeal of the department stands allowed.
Order pronounced in the Open Court on 17th July, 2006.